Canceled loans continued to swell with a downward trend in collection, compounded by irregularities in disbursements, which ultimately led to an increase in outstanding amounts.
In the first nine months of 2021, banks removed around 974 crore of Tk from their balance sheets and recovered only 472 crore of Tk, according to Bangladesh Bank data.
Since the introduction of the facility in 2003, lenders have written off Tk 57,975 crore up to September last year, or 57.31% of total delinquent loans in the banking sector.
Write-off of bad debts is an exercise carried out by banks to clean up their balance sheets for tax and capital optimization purposes.
Banks must maintain a provision at a rate of 0.25% to 5% against unclassified or regular loans. But it will be between 20% and 100% depending on the quality of the defaulted or classified loans.
Initially, loans over five years past due could be forgiven, but the deadline has now been reduced to three years.
To write off a bad loan, lenders must maintain a 100% provision using their income or depositors’ money.
Banks generally cancel loans with the lowest prospect of recovery. However, these loans cannot be rescheduled or restructured, the bankers said.
In recent times, there have been changes in the delisting policy. Previously, up to Tk 50,000 could have been written off without filing a case with the Artha Rin Adalat – courts dedicated to dealing with complaints related to loans.
At present, up to Tk2 lakh can be written off without filing a case. Taking advantage of the easing of central bank policy, lenders increased the write-off of their delinquent loans.
Over the past few years, the amount of delinquent loans has increased significantly, mainly due to various disbursement irregularities, industry insiders said.
In 2019, Bangladesh Bank had offered borrowers a special opportunity to regularize loans from Tk 10 crore to Tk 500 crore with 2% down payment.
After the coronavirus hit the country in 2020, the central bank extended the facility which finally ended in December last year.
Since the possibility of recovering these loans is slim, banks are going the route of writing off delinquent loans to make financial statements look clean.
After the recovery of this sector from 2003 to September last year, the net amount written off stood at Tk 43,609.43 crore.
According to available data, overdue loans in six public banks amounted to Tk 17,219 crore.
While it exceeded Tk 24,953 crore in private banks, Tk 1,071 crore in foreign banks and Tk 365 crore in specialized banks.
In 2019, banks wrote off Tk 2,596.69 crore and collected Tk 831 crore from the sector.
Lenders removed Tk 970.59 crore from their balance sheets in 2020 when they recovered just over Tk 736 crore.
Company law expert Barrister Tanjib-ul Alam said a significant number of loan-related cases remained suspended for years by High Court orders.
“In addition, trials of other cases are unreasonably adjourned at the Artha Rin Adalat. Due to a lack of proper training of judges, a speedy settlement of these cases is not possible,” he said. he told The Business Standard.
He said, “The cases pending by High Court orders should be settled. Bangladesh Bank should take the lead in this regard. A list of cases stayed by High Court orders should be prepared and submitted. to the Chief Justice through the Ministry of Justice, who may then take the necessary action in consultation with the Chief Justice.”
Lawyer Tanjib-ul-Alam also mentioned that there is a need to increase the number of Artha Rin Adalat and judges and handle these cases with efficient judges.
Former Bangladesh Bank Governor Salehuddin Ahmed said: “In fact, loans are canceled when it is found that they cannot be repaid at all or there is a lack of response. However, canceling does not mean forgiving. On the contrary, it is kept in a special note after removing the amount from the balance sheet.”
He said, “However, loans should be written off very wisely. Because it would not be fair to increase the amount written off too much.”
Salehuddin Ahmed further stated that there are so many ongoing cases with the Artha Rin Adalat and that is why they are not settled easily.
“But, if there had been exemplary judgment in some big cases, the backlog would have gone down. Because not having such judgment is our weakness,” he added.